Friday, August 29, 2008

Several tier-1 firms are defending Dell (NASDAQ:DELL) this morning following FQ2 results:

- Merrill Lynch notes Dell remained on course to reignite growth and in F2Q08 it gained share across its primary product segments and grew revenues 11% YoY, above their 6% estimate. However, aggressive pricing and increased deferred services revenue in EMEA resulted in gross margins over a pt. below MLCO estimate and a $0.03 miss on EPS. Firm reiterates their Buy rating and $27 price objective based on Dell’s traction in share gains as it benefits from the investment phase of its turnaround and in the long term operating leverage improvement.

- Morgan Stanley says they are buyers of DELL shares on a pullback post the July quarter EPS miss because: 1) while clearly an execution problem, EMEA margins are isolated and fixable with some improvement likely in F3Q. 2) Our enterprise mix thesis is on track as evidenced by market share gains that drove a 70 bps improvement in Americas + APJ commercial operating margins (to 8.4%). 3) New product momentum should accelerate in F2H09 and these lower-cost products shift the restructuring focus to COGS. DELL’s EPS fell $0.04 short of their forecast and $0.03 short of consensus, but would have beat estimates by $0.02-0.03 if not for the EMEA shortfall. Firm lowers the EPS bar for the next two quarters but don't believe this quarter’s mis-execution is structural; therefore FY2010 and FY2011 estimates remain unchanged. Maintains OW.

- Citigroup believes both short and long-term investors should buy DELL shares on yesterday's weakness. 2FQ's gross margin shortfall was self inflicted and should largely reverse in 3FQ. Moreover, the company is making solid progress with op ex and should start to see significant progress with product COGS during the coming 6-12 months. While $2.00 in earnings has probably been pushed back by six months, their valuation work still suggests a twelve-month target of $28, 23% above the after-market price of $22.69.

Self Inflicted Wounds in Europe - Europe was almost entirely responsible for an unanticipated 90bp qoq decline in gross margin. Sixty percent of the shortfall was caused by a shift in services revenue recognition from upfront to deferred while 40% was mgmt's decision to aggressively pursue commercial notebook share in EMEA. We sense that Dell is considering a return to previous services sales practices which allow immediate revenue recognition. On pricing, they believe Dell has already rectified its mistakes.

- UBS, I'm hearing is the most negative of the bunch saying they do not expect an improvement in the n-t.

Notablecalls: I think DELL will be higher from here (@ $22.70 pre mkt) in couple of weeks. Not exactly sure how to trade the stock in the very s-t, though. We may touch $22 (or even lower) levels is what I'm worried about.

I will be an oportunistic buyer here leaving a lot of dry powder to take advantage of lower levels.

Wednesday, August 27, 2008

- Merrill Lynch is out positive on MEMC Elec (NYSE:WFR) this morning noting they expect the co to report that 3Q is progressing as planned and leave guidance unchanged on their mid 3Q conference call, Tuesday September 2 after the close. Management’s guidance is based on 11 weeks of polysilicon production in a 13 week quarter, allowing room for unexpected manufacturing interruptions, keeping the firm comfortable with their estimates. However, Investors are concerned that execution risk remains, if the firm is correct in their view that 3Q has run smooth so far, they believe the call will be a catalyst to reinforce their view that the stock should be valued in-line with peers for a 14x P/E on 2009 to reach their $70 price target.

Inventories have been at historically low levels of 12 days during1H08, leading to additional execution concerns. If manufacturing is running smoothly, the firm believes the company could rebuild some silane and polysilicon inventory in the current quarter to handle any unanticipated production issues down the road.

Maintains Buy and $70 tgt on WFR.

Notablecalls: We had couple of tier 2 firms out positive on WFR yesterday but the stock did very little for the bulls. I think MLCO's comments may ignite it to the upside here.

- Merrill Lynch rates Buy and $28 tgt on Pilgrim's Pride (NYSE:PPC) noting the stock was off ~15% following weaker than expected results from Sanderson Farms (SAFM). While they do not cover SAFM, they believe the market is overreacting to the weak quarterly results and outlook from SAFM management. Sanderson has produced solid results in the face of rising grain prices as a result of hedging contracts, in Merrill's opinion, and now the company is beginning to experience the same tough conditions the industry has faced over the last few quarters as these contracts roll off. Firm believes the sell-off in PPC is unwarranted as there is no new news and that the tough conditions have already been priced into the stock.

They expect that incremental production cuts—announced since grain prices rallied in June—should lead to a curtailment of supply in the early fall and a bottom of the cycle in the September quarter. Firm believes the decline in supply should allow for a non-seasonal move in poultry prices over the next few months, as supply and demand move into balance. While they expect grain prices to remain volatile, Pilgrim’s earnings and margins are much more levered to poultry pricing.

Merrill continues to expect a sharp recovery in F2009, as they estimate EPS of $2.07 versus a loss of $3.25 in F2008. Believes that earnings will recover as industry production cuts take hold and pricing responds.

Notablecalls: Note the call was out last night just before close. Yet, I think it will get some playtoday. I view PPC's 15% slide yesterday as gross overreaction and expect the stock to retrace at least part of it today.

Suspect corn (feed) prices will take a hit and as the poultry co's have shortened their supply contracts with the restaurants, they can more easily pass on price hikes from here.

Note that PPC was down more than SAFM itself yesterday depsite already warning of coming short this qtr.

Tuesday, August 26, 2008

Avian Research thinks the street is too low for next qtr and the concerns on HDD related biz is overdone. The bar for next qtr is set so low that they could keep HDD rev's flat (WDC guided for 8-14% shipment growth) and still hit street numbers. Firm's model right now has them doing $930M in revs for Q3, significantly above the street's $887M. Share loss at RIMM shouldn't be a concern until mid '09 and we can back out Thunder and Javelin entirely and still have their cellular business doing 20% growth in '09. This company was $37 when they bought xScale from INTC and went through a whole slew of problems since then with SEC investigation and options overhang and potential management shake up. Last qtr was when they turned the corner. They cleared up the SEC investigation, got the margin profile headed back in the right direction, announced a new CFO and showed ridiculous revenue growth. Outside of being a supplier to WDC (which hasn't been a bad place to be) MRVL is in Blackberry, they're in the iPhone, they have an SSD controller biz with INTC, they are basically in every important area of technology outside of Solar. Believe MRVL growing revenues at 20+% and trading under 15x EPS is one worth owning.

Jeffco is out today w/ a dg to Hold and the stock is down 5%+ in reaction to that.

Yet, we have Cowen out saying things are good. They actually spoke to the CFO that reiterated HDD side ticking as planned. Their checks also suggest that MRVL has seen some important wins at INTC and MU;

Also, Avian Research is reiterating their positive opinion on MRVL; remains one of their favorite names and they believe they will beat and raise when they report tomorrow.

Notablecalls: So, even if Jeffco is right on the L-T, the shorts are likely going to get squeezed following the results. One to watch. - fyi

Cowen is out positive on Energy Conversion Devices (NASDAQ:ENER) saying they expect Q4 EPS to meet or beat our 20c ENER estimate (vs. St. 16c), based on revenue and margin upside, with operating expenses (ex. restructuring) below consensus. Firm sees room for Street estimates to rise, particularly on greater operating leverage. Increased backlog should aid visibility on demand and ASP trends, boosting investor confidence. And, details on the next expansion could help illuminate out-year earnings power. They see 50% upside vs. the market in 12 months and reiterate Outperform.

Higher Backlog Should Boost Investor Confidence. Concerns about ASP erosion compressing margins have been overhanging solar stocks. In mid-June, ENER had already booked 94% of F09 (48% take-or-pay) and 48% of F10, with 600MW of backlog through 2013 (up from 400MW on the Q3 call). F09 ASPs were expected to be flat to just slightly down, and another bump in bookings may allow management to more explicitly frame the F10 outlook.

Details Of Next Expansion, F09 Cost Targets Should Be Triggers. The next factory is likely to be 300MW, probably in a tax-advantaged, Asian location. This would double the run-rate capacity ENER expects to reach when Greenville is fully ramped in Q4:10. While it may be too early for definitive details, an outline would help investors begin to model F11/CY10 earnings. Firm also expects an update on F09 cost/watt reduction.

Notablecalls: I suspect ENER will move on this call. I especially like Cowen's comments regarding the backlog. Could do 2 pts easy or even challenge recent swing highs.

Firm notes CRM’s CY09 EV/S of 4.4x is only at a slight premium to median of 4.0x for the sub-group of enterprise software co’s within their coverage universe, despite having a CY09 rev growth of 34% that is more than 3x the sub-group’s 11% median and boasting a more predictable subscription model.

August has historically been one of the best months to buy CRM stock as it is followed by the 2 strongest months. On average during 2004-2007, Sep.-Oct. has returned gains of 34%. The next major catalyst is likely CRM’s annual Dreamforce user conference, which is scheduled for Nov. 3-5, right after the close of FQ3 (Oct.).

Notablecalls: This is a pretty solid call that will take the stock to $58+ in a jiffy. It's still down 10 bucks from last week. Anything below $57.50 is buyable this morning.

Monday, August 25, 2008

Citigroup is out positive (or semi-positive) on the GSE's Fannie (NYSE:FNM) and Freddie (NYSE:FRE) noting the recent sell-off has been surprising. This is especially true since the only catalyst appears to have been a press report suggesting that federal officials are likely to recapitalize (“nationalize”) the GSEs soon. The market reaction indicates that a government seizure of the GSEs is imminent and that common and preferred shareholders would likely suffer. This view has prevailed despite the recent public comments of the Treasury secretary and other policymakers in support of the GSEs in their current form (as shareholder owned institutions).

Citigroup believes the GSEs are not entirely without options. First, policymakers could reassert the benefits of the backstop plan that became law last month. Second, the GSEs’ regulator could ease the arbitrary capital surplus requirement further. Third, the GSEs could free-up capital by allowing portfolio assets to run down over time. Fourth, given firm's analysis, which shows that both FNM and FRE should have sufficient capital through (at least) year-end 2008 under a variety of negative credit scenarios, all parties could wait-it-out until market conditions calm.

Firm is not convinced that Treasury needs to take any action over the near-term. While the decline in the GSEs’ stock prices, if they persist, may pose challenges to any capital raising efforts down the road, the short-term stock price performance does not have any bearing on the success of the “Paulson Plan.” In fact, they believe Treasury Secretary Paulson’s plan to provide a backstop for the GSEs in order to ensure their market access for debt issuance (included in the recent mortgage legislation, see below) is working. As evidence, the recent notes issued by FRE, which were oversubscribed and included 40% participation from non-U.S. investors (30% Asian) showed the success of the backstop plan, regardless of the price paid (which is more of a business issue than an access to funding issue).

Accordingly, they explore a possible scenario for a government “bailout”, such as a Chryslerlike federal loan with warrants and discuss implications for investors. In this unique situation, the impact on stakeholders was generally positive over the long-term.

Citi maintains Buys on both FNM and FRE with $9 and $6 tgts, respectively.

Notablecalls: Was going over this call with a tier-1 trader this AM. This is what he had to say:

As the only semi positive note I've seen in weeks, I think it should generate some interest, if not from longs, then from shorts... but any price action to the upside will prob be limited.

I must agree here. I like FNM more here as it's just somewhat bigger in mkt cap. It's being offered @ $4.80 (down 5%) in pre mkt which looks like a solid initial entry. Keep it small and tight. Let's see if this Citi call puts some fire under the shorts.

We have several tier-1 firms out positive on Monsanto (NYSE:MON) this AM:

- Merrill Lynch is raising their tgt to $165 from $155 (Reit Buy) noting that at its recent investor field event Monsanto indicated that fiscal 2009 biotech trait price increases will be above earlier expectations, particularly for triple stacked corn up 33% on average from 2008 versus June guidance of a 20% increase. MLCO's proprietary review of Monsanto’s just-issued price lists indicate that the trait increase approaches 50% for the premium product (VT triple) in the high-yield, high-rootworm pressure areas, but is roughly flat in lower-yielding, low rootworm pressure areas, which they believe will drive penetration rates. Second generation Roundup-tolerant soybeans will be priced $20/acre above first generation versus original expectations of $15. The first generation product will see a seed and trait increase of ~$12/acre, which will be largely offset by higher production costs.

Firm is raising their F2009 and 2010 estimates to $5.10 and $6.10 to reflect the improved pricing outlook in both the seed and genomics segment and in Roundup.

- Morgan Stanley notes that following Monsanto’s third annual Whistle Stop investor event in Monmouth, IL they have increasing conviction in: i) The Company’s ability to execute its overall business plan regardless of the commodity price environment (i.e., secularly higher commodity prices provide upside to the opportunity set, but not the opportunity set itself); ii) The efficacy of Monsanto’s pipeline products; and iii) The Company’s ability to commercialize its pipeline on time. Firm expects the confluence of the above to allow Monsanto to continue to enjoy corn and soybean market share gains (i.e., bigger castle) while lengthening its lead in developing new farm biotechnology (i.e., wider moat).

While Monsanto shares may remain volatile around swings in the US$ and crude oil price, the firm sees only correlation in this regard and not causation (i.e., no P&L impact) and therefore anticipate that as Monsanto continues to execute on its business plan regardless of the US dollar,crude oil price or corn price (i.e., it anticipates corn gross profit to grow 25-30% in F2009 against a 25% comp), Monsanto shares will trade up towards their intrinsic value.

Reits Overweight and $170 tgt.

Notablecalls: I think these two calls serve to push the stock towards higher levels today. I feel that under overall positive tone the stock could reach $120+ in coming weeks.

Note that Citigroup is out with a positive Fert. call this AM, pushing Potash (NYSE:POT) as their Top Pick. This will surely help the positive sentiment.

Friday data from the TFI showed that North American potash producer inventories fell by 10% MoM in July to ~1.0 mln tonnes (35% below the 5-year average).

POT shares have suffered along with the rest of the materials/energy sector as global growth concerns mount. However, the market has failed to recognize that demand for grains rarely cycle (supply cycles though) and has shown little historical correlation with economic activity.

Bottom Line – Citi believes the sell-off is overdone and at 7x core ’09 earnings, POT is discounting a far worse earnings scenario than fundamentals indicate.

Notablecalls (as disted on NCN): I think POT will get a boost on this call. One to watch today.

Friday, August 15, 2008

Citigroup is out very positive on First Solar (NASDAQ:FSLR) following a CA utility PG&E deal supplied by Sunpower (NASDAQ:SPWR).

Based on firm's checks, these deals were the consummation of last year's utility RFQ process and are separate from current utility RFQs. In fact, the ~550MW facility from OptiSolar had been already announced (without PG&E as the customer) in April (for capex of ~$1.80/W). It is very important to keep in mind that SPWR was just about the only reputable game in town at that time as FSLR was not yet servicing the utility scale market, only acquiring capabilities to do so (via its Turner acquisition) in November 2007.

Pricing appears very aggressive — Again, based on checks, they think pricing on these deals is as low as ~$0.12/kWh - a level where FSLR can make very good money, but a level where they can't see SPWR getting much more than ~10-15% OpM - about in-line with C2007 levels, but well below the current CQ2:08 run-rate.

While the market will almost certainly take this positively for SPWR and may even draw a negative conclusion for FSLR, Citi would be buyers of FSLR on the news and not SPWR. It appears SPWR is racing to sign big deals - even at the eventual expense of margins - ahead of lower-cost suppliers like FSLR in an attempt to build scale and worry about margins later. As for FSLR - which has not had any major announcements while SPWR has been on a binge - checks suggest a largescale announcement may be forthcoming in the near-term.

Reits Buy and $450 tgt on FSLR.

Notablecalls (as disted on NCN): With SPWR up 9%+ here I think FSLR will see at least a 3-4% move as well. Could do $270 early on.

Merrill Lynch is out very positive on Research in Motion (NASDAQ:RIMM) reiterating their Buy rating and $170 PO on RIM, heading into a seasonally strong Sep-Dec period which also coincides with the contract renewal/device upgrade timeframe for the older Blackberry 8700 and Blackberry Pearl customers. Firm believes street expectations are low – especially for the November quarter that could feature 2 to 3 new product launches with multiple global carriers and couldbe a blow-out quarter for RIM. Valuation remains compelling at 26x CY09EPE, relative to expectations for 35%+ annual EPS growth rate for next 3-5 years.

Currently consensus estimates are for RIM’s shipments to grow from 6.1mn units in F2Q09 (Aug) to ~7mn units in F3Q09 (Nov). This QoQ growth of ~0.9mn units is the same as last year’s growth in the same period, which seems extremely conservative as RIM could launch 3-4 new platforms (**) within F3Q09, AND has 1.5x more subscribers than last year with pent-up demand for upgrades. Firm forecasts 7.1mn units for F3Q and believes shipments could be closer to 8mn to 9mn units, or 10%-30% above current street expectations

Notablecalls: I was just talking to one smart trader about RIMM yesterday. He was taking some long just before the close noting the last 3 day retracement was on really light volume.

So, today we have MLCO out with a uber-bullish call on the name. The call stands out from the consensus and I expect the stock to hit at least $130+ on it.

Wednesday, August 13, 2008

Morgan Stanley reits OW on Deere (NYSE:DE) with a $105 tgt noting 3Q08 results andguidance may disappoint the market somewhat, but are not a huge surprise given materials costs that have spiked since Deere’s May 14 guidance. Deere’s 2008 net income outlook was lowered to $2.13 billion from $2.20, an effective decline of 14% for 4Q guidance. They don’t see anything structurally wrong, they simply think materials costs are higher than expected.

Deere could easily have raised prices more in 2008 to deal with materials costs, in firm's view,and the weak pricing vs materials is simply not an indicator of structural pricing weakness. They see no immediate need to adjust 2009 estimates.

Notablecalls: I think DE represents a good play here @ $62 (10x FY09 EPS)

Two firms defending Amedisys (NASDAQ:AMED) this morning following 18% downside move yesterday following a negative Citron Research piece:

- Oppenheimer notes they have reviewed a report on AMED by Citron Research. The report primarily questions the company's accounting for receivables and its ability to generate greater internal growth than its peers. After speaking to management and analyzing the supporting details of the report, the firm believes the report is irresponsible in its innuendos of an underlying problem at Amedisys. Furthermore, they believe the stock's reaction to the report is significantly overblown. Regarding the question of A/R management, Amedisys has recently made a number of acquisitions, which can make it difficult to interpret the numbers. However, most importantly AMED's OCF as a % of EBITDA was 84% in '07, the highest of any company we cover.

The report implies AMED's revenue per admission("pricing") growth is excessive relative to itspeers. However, this is actually due to the company's growth strategy, which focuses on increasing its re-certifications as its agencies mature. This has led to an increase in episodes per admission, which has been the true driver of revenue-per-admission (not "pricing"). Opco notes they continue to have the utmost confidence in the current management team. In their experience, AMED has always been very forthcoming and transparent with the details it provides around the business.

Overall they believe the accusations are unfounded. While clearly this will present an overhang in the short term, when the dust settles they believe the stock will offer a compelling buyingopportunity.

Maintains Overweight and $73 tgt.

- BB&T Capital Markets also defending AMED: - While they are normally not in the habit of writing response notes, the severe stock reaction compels them to give their take on the situation. Firm notes they had the opportunity to speak with management yesterday and while they were deeply troubled by the reaction of their stock, they reiterated confidence in their quarterly results, and their outlook for the company remains unchanged.

Notablecalls: AMED has a 30% short interest. I think this one bounces on these defenses. A close 20% downside move in reaction to Citron's call almost never lasts.

Stock Reaction: After AGCO's and CNH's solid reports set the bar a little higher for Deere, this report, despite the strong Ag results, will push stock lower this morning, in firm's view. Key to report is 4Q guidance weak with costs sounding like a major element as rev guidance for 4Q of +29% is strong (despite slightly lower than expected 3Q revs, strong 4Q raises full yr rev guidance from 20% to 21%. However, for bulls, they will feel better that 4Q is a cost issue, not a revenue issue. Citi notes they are aware of many investors looking at Deere as improving price vs cost story for '09 when new large equipment models get the announced price increases of +5%+ (especially with commodity prices having pulled back suggesting less input cost pressure), with ag equipment demand being up in '09 as better than avg predictability, along with the strong Deere balance sheet as a security blanket. Stock likely finds strong support around $65-$66 (10x-12x range of '09 EPS assumptions).

Maintains Buy and $98 tgt.

Notablecalls: I have DE on my radar as a bounce candidate this morning.

Tuesday, August 12, 2008

I usually don't do this but I wanted to say something about Zoltek (NASDAQ:ZOLT) and its CEO/Chairman Zsolt Rumy.

As many of you know, ZOLT missed ests badly and guided down last night.

The stock was very weak already yesterday, in reaction to RBC Capital's wonderful call saying they were highly cautious holding shares into the qtr as the firm believed significant margin compression could lead to a 5-6 cent shortfall to Street estimate of 27c. Primary culprit was expected to be ~12-14% increase in raw material acrylonitrile (refined crude oil product) costs in the June qtr and inability for company to pass through price in its contract and spot market, representing 2-3% GM downside potential to Street estimate of 30.3%.

The CEO's response to this, you ask?

Well, around 1:40 PM ET we had this cross over at Bloomie:

Zoltek's Rumy says co's fundamentals are 'good as ever' and says unsure how to respond to analysts' reports - Bloomberg

The stock recovered a full 1pt in reaction to this.

Hell, why not buy a stock down 15% when you have the CEO defending it ahead of results.

Right?

Nope. ZOLT's down another 17% today as it looks like business isn't as 'good as ever'

I know's there's RegFD but what about misleading investors like Mr. Rumy did?

My message to Mr. Rumy?

You ought to step down. Right now, right here. As if the problems with your CFO weren't enough!

Morgan Stanley is out with a positive call on Monsanto (NYSE:MON) reiterating their Overweight rating and $170 tgt on the name calling the stock cheap here.

- According to the firm 100+ investors will travel to Monmouth, IL with Monsanto management this week to tour fields containing Monsanto’s biotechnology pipeline. What makes this year’s trip particularly exciting is that MSCO's math indicates that at today’s share price investors will be handed the pipeline for free (i.e., they believe that the existing business is worth $110 per share and that the pipeline is worth $60). To be clear, their models assume $3 corn and $8 soybeans; using current $5 corn and $12 soybean prices would increase the pipeline’s value by $8 and $5 per share, respectively. They expect two days in the fields with management to flood the current bumper crop of investor concerns (i.e., “plummeting” corn prices, stronger US$, fears of a US economic slowdown leaking into emerging markets, et al) as they relate to Monsanto’s both current and futureP&L.

Stock even looks attractive on P/E. While they still do not believe that P/E is the correct way to value Monsanto (as it ignores the earnings power that is being reinvested in R&D - i.e., ~$1.50 of EPS in F2009), following the 23% pull back in Monsanto’s share price since its all time high on June 16, the firm no longer believes that bears have much of a P/E leg to stand on.

Notablecalls: I think this call will generate some buy interest in MON today ahead of the investor meeting. The stock has been crushed over the past months and the meeting could act as a significant trigger here.

MON could hit $110-$112 easy today if it gets going.

PS: Note that Citigroup is also out pos on MON reiterating their Buy rating and $145 tgt after after recently meeting with senior BASF Ag leaders at an Investor event (MON has a partnership in place with BASF).

While I tend to pass on most market rumours and stick to analyst calls etc., this one was almost a sure mover. This one had it all:

- WCG has been long viewed as a buyout candidate.

- Mergermarkets is a solid service and has gotten many calls right over the past years.

- Short interest still stands at 7% of float. Let's assume you're short 200,000 shares and have a credible rumor of a buyout starting to make the rounds. You know there's a fair chance of the rumour being true and being announced over the weekend. So you cover. Covering a 200,000 share block on a August Friday is a short's nightmare (been there personally). So you pay up, pushing the stock up 1-1.5 pts just to get out.

Knowing all this, I quickly gave heads up to the rest of the 50+ NCN members.

The result can be seen here: 2pt+ move to the upside.

This is how Notable Calls Network (NCN) works - sharing the flow. We catch them every day.

Want to be part of NCN?

It's easy. Just shoot me a brief email that includes a short description of yourself and your AOL nickname.

Please do note that contacts via IM are limited to people with:

- 3+ years of trading experience

- Access to quality research/analyst commentary

- Ability to generate and share (intraday) trading calls

I will not accept contacts from purely technically oriented traders, penny stock fans or people who have less than 3 years of experience in the field.

Sprint is up today on rumors that the company is close to selling its iDEN (Nextel push-to-talk) platform. This, coupled with the proposed WiMAX venture with Clearwire (CLWR), would leave Sprint with its core CDMA platform. Our checks suggest that there are several parties that would be interested in acquiring Sprint's core CDMA platform, including Deutsche Telekom/T-Mobile (DT), Comcast (CMCSK), and Carlos Slim (American Movil, AMX). We are hearing that Sprint may be close to a deal with the U.S. Government wherby the Government would assume Sprint's iDEN assets (no economic consideration) for use as a secure, private network. As part of the arrangement, Sprint would migrate all iDEN subscribers onto its new push-to-talk platform (QChat) before delivering the network assets to the Government. Motorola (MOT) would management the network for the US Government under a long-term contract. This business would likely be housed in MOT's Government and Public Saftey business within Enterprise Mobility Solutions. We would view such an announcement as a positive for MOT. In addition to the U.S. Government, we are hearing that Tim Donahue (former head of Nextel) together with Cerberus Capital may also be mounting a bid for the iDEN platform. Interestingly, in Sprint's recent 10-Q filing, the company discloses a recent compensation agreement with Keith Cowan whereby Cowan stands to receive $500,000 upon the close of the Sprint-Clearwire WiMAX transaction and $1 million "upon the Board's approval of the strategic resolution of the iDEN network".

Notablecalls: Well, Avian may be on to something interesting here. Their comments regarding Cowan's comp package and iDEN network make sense.

Several firms comment on Deckers (NASDAQ:DECK) after the co issued quarterly results and guidance last night:

- RBC Capital notes yotal inventory for the quarter increased 70%, in-line with revenue growth of 73%. The increase is predominantly attributable to the UGG brand which saw a 74% increase. While in isolation this increase appears high, they note the following: 1) revenues at the UGG brand grew 131% in 2Q, and 2) the vast majority of this inventory has orders written against it and was not produced "on spec."

For 2008, management guided EPS to grow 34% vs. prior guidance of 27%. Hence, they are raising their estimate from $6.40 to $6.75. However, based on some earlier shipments of fall product in 2Q and an increase in SG&A expense (mostly an increase in long-term incentive compensation accruals due to earlier realization of performance targets), they are adjusting our 3Q estimate down while taking their 4Q estimate up.

RBC believes the story here continues to be the strength of the Ugg brand. Uggs remain one of the few must-have items in the footwear arena and they believe the momentum in the brand will continue this fall season. Remain buyers of the shares. Reits Outperform and $154 tgt.

- Baird notes DECK exceeded Q2 expectations and raised its guidance. But some will argue that inventory is too high. Firm says they are glad that UGG inventory is up 74% because it suggests that DECK has a very strong backlog, as the company is essentially building product to its orders, and they see little risk of order cancellation. firm continues to like DECK because they believe the shares are undervalued relative tothe company's prospects. Reits Outperform and $190 tgt.

- Piper Jaffray says they are reiterating their Buy rating and revisitingLT peak EPS analysis following another solid quarter and upwardly revised guidance. Ugg sales growth in the period at 130% far exceeded even lofty expectations and firm's published estimates at 85% - a theme they expect to continue into the prime selling cycle in 2H. EPS of $0.39 (net of items) exceeded PJ and Street $0.24 estimates. Given broader concerns surrounding macroeconomic and spending pressures balanced with an upward bias to estimates, they are resetting their PT multiple closer to the LT growth range at 22x, resulting in a price target revision from $169 to $150. (Peak earnings analysis suggests close to $11-$12/share in EPS)

Notablecalls: The stock briefly hit $100 level in after hours action in reaction to Q3 guidance and reported inventory levels. I think DECK's no Crocs (CROX) - the demand is for real (as confirmed by management comments on conf call).

The real question here is of course what to do with the stock trading at $115. Should you chase it after the 15pt rebound in after mkt or lay low and hope for a pull-back?

I think that there will be some people out there that will look at the inventory growth and hit the sell buttons. That will give us a good entry point. $110 looks like the level.

I would not want to chase DECK here.

Hell, did you see the comps miss ANF posted yesterday? I sure haven't seen a miss of this magnitude in a while from them. Goes to show how tough the business is out there.

Thursday, August 07, 2008

Merrill Lynch is out in defense of Sprint (NYSE:S) noting the stock sold off 14% after announcing improved Q2 operating metrics and a $3bn convertible. Investors seem concerned that the convertible could limit take-over potential, although terms have not yet been announced. They doubt that Sprint would restrict its M&A options for the sake of better terms on $3bn. In the near term, the firm expect a bounce. For longer-term outperformance, they would need better visibility on the path to subscriber base stabilization and margin improvement.

Sprint’s operating performance has improved but is not yet stable, with wireless service revenues down 11.2% y/y. The highlight was a 45bps+ reduction in postpaid churn (to <2.0%), but with soft gross adds, postpaid subs declined by 776K (MLe: 1.0mn). Guidance for 3Q08 was slightly downbeat, with postpaid subscriber losses to worsen and EBITDA to decline. Management guidance has been consistently conservative, although they do believe that AT&T’s 3G iPhone launch and a weak economy are hurting Sprint.

Wednesday, August 06, 2008

Keep your eye on this FCN had big news this morning aside from hitting numbers, they are spinning off there technology business in the form of an IPO, big news, will be kind of hairy but i dont think people understand how positive this spin off is.

I'm hearing (and have it confirmed) that UBS is out with call on Microsoft (NASDAQ:MSFT) saying the co could be preparing for a $20B stock buyback, one that would be completed over the next three months.

The firm recommends buying the stock now as the company is unlikely to make an announcement until the buyback has been completed. UBS thinks MSFT shares could reach $40 in the next year.

Notablecalls: I see some buy interest in MSFT here in pre mkt.

$40 target sure sounds huge. But on the other hand, UBS research has been so-so lately.

Tuesday, August 05, 2008

- RBC Capital is out with a good call on Deckers (NASDAQ:DECK) saying that despite the the sell-off in shares over the last week, they continue to believe that momentum in the business remains strong and that there is modest upside to consensus estimates for 2Q. In addition, the firm does not view their estimates for the remainder of the year as being particularly risky.

While 2Q represents a relatively small quarter (12-13% of revenue and 3-4% of profits), sales trends, particularly at the Ugg brand, remained strong based on channel checks. In addition, the early feedback they have gotten on fall styles available at Nordstrom during the July Anniversary Sale has been equally positive and they believe bodes well for performance during the fall season, overall.

Last week, the firm attended the analyst event management hosted during the WSA Show in Las Vegas. The meeting was used as a venue to showcase the upcoming Spring 09 merchandise assortments for their three main brands (Ugg, Teva, and Simple). During the meeting, management's commentary was very upbeat. Pertaining to the Ugg brand in 2Q, management commented that they were happy with the early reads on new fall styles that were shipped to retailers in June and July and that their close-out business was very small and consistent with prior years.

RBC anticipates 2Q EPS of $0.25, up over 40% vs. last year's $0.17. Street consensus for the quarter is $0.24. Remains optimistic with regard to the DECK story and would continue to be buyers of the stock.

Reits Outperform and $154 tgt.

Notablecalls: I think DECK deserves to go higher from here based on RBC comments. The stock is a good mover so I think there is a trade to be had there.

Monday, August 04, 2008

Dealreporter is out with an interesting piece on Bluegreen (NYSE:BXG) saying Diamond Resorts may find financing an acquisition of Bluegreen, the Florida timeshare company, challenging, according to bankers following the situation. “This is a tough thing to finance,” said an industry banker, adding that his bank would not lend towards a possible deal between the two parties. It is the wrong time to finance a timeshare transaction, commented a second banker who was familiar with the companies involved and had previously been involved in lending for transactions in the industry.

On 21 July, Diamond Resorts signed a non-binding letter of intent (LOI) relating to the acquisition of Bluegreen for USD 15 a share, or approximately USD 500m. The agreement allows for Diamond Resorts to conduct “extensive” diligence until 15 September. In its 18 July letter to Bluegreen, Diamond Resorts said it was “confident that it will be able to raise the financing necessary to consummate the proposed transaction.”

A source close to the situation said Bluegreen had taken reasonable steps to satisfy itself “to some extent” that Diamond Resorts could finance the transaction. The source said Bluegreen had been given some insight into Diamond’s financing plans, but would not go into detail. The source acknowledged that financing market conditions were uncertain at present and decisions on both sides of the table could change during the due diligence process.

Yet, a third banker said the timeshare industry has been a steady performer in tough economic times as people have been unwilling to let go of the equity in their timeshare investments. However, he pointed out vacation ownership and residential sales at Starwood Hotels & Resorts Worldwide, one of Bluegreen’s major competitors, had dropped 28.4% in 2Q08 when compared to the same period in 2007.

The first banker speculated that because a LOI was signed rather than a definitive agreement, financing was probably the biggest question mark surrounding the deal. “I think that they are struggling on financing,” the banker said. Bluegreen is actually taking on the financing risk by allowing Diamond Resort’s access to its books with no breakup fee, this banker said. Diamond Resorts had been given access to conduct diligence because it was a highly motivated buyer, and because of the attractive price being offered, the source close to the situation said.

Notablecalls: I think BXG should move towards the $8-9 level on this tidbit. BXG was a $6.5 stock when the "deal" was announced.

I expect the media to pick up on this one by tomorrow morning as they did with AKS (the next day after Dealreporter broke the story to subscribers)

- Morgan Keegan is out with a decent call on Wachovia (NYSE:WB) noting the shares outperformed last week up 30.9% versus a 6.4% rise in the KBW Bank Index (BKX). However, this rally followed a period of significant underperformance by WB shares between 07/23-07/25 when shares declined 23%, versus a 12% decline in the BKX.

They believe that last week's rally was mostly driven by short covering ahead of new CEO Bob Steel's meeting with the sell-side later today. Firm would be defensive and take profits ahead of the meeting as the reality is...there are no easy fixes near term at Wachovia.

Keegan notes they have seen this same story play out several times before during this current credit cycle where share prices have risen, ahead of fundamentals, following CEO changes. John Thain - Merrill Lynch, Alan Schwartz - Bear Stearns are a couple of instances that they have witnessed over the last one year where shares rallied following the CEO announcement only to retrace back later.

Based on Mr. Steel's comments during the second quarter earnings conference call they believe it is too early to make the call with regards to whether or not Wachovia will need to raise more common equity given the significant credit challenges ahead.

While the firm believes Mr. Steel is a good-fit to fix Wachovia, we are not sure what he can say to alleviate balance-sheet and credit concerns after less than a month in office when he meets with sell-side analysts later today. While the recent resignations of the Chief Financial Officer - Tom Wurtz and Chief Risk Officer - Don Truslow indicate the urgency with which he is approaching the job, in our view it also risks Wachovia being saddled with a new management team that might require more time in getting familiar with the balance-sheet and the complex issues that currently face the bank, prolonging the fundamental recovery of this franchise. Having said that, they still expect more changes among the executive ranks and line of business heads at Wachovia in the coming months.

Notablecalls: A decent call. Not sure how to trade it, though. Short it right here and risk getting caught in a wave of positive stuff coming out of the conf call. I'd rather sell any rips during the day as I think this is offers a better risk/reward. I'm sure others will join.

Friday, August 01, 2008

- Leerink Swann is back with some comments on Elan (NYSE:ELN) following yesterday's PML related sell-off:

- Bottom Line: Report of two newly confirmed cases of PML in MS patients treated with Tysabri are likely to create significant volatility in BIIB and ELN stocks today. But they believe the occurrence could create a positive long-term environment for the drug by demonstrating successful intervention using plasmapharesis (PLEX, initial details of which were presented at ECTRIMS in October 2007).

The patients who developed PML were treated in Europe, a region for which a TOUCH program has not been established. A MEDACorp MS consultant noted to the firm last night that the lack of confirmed cases of PML in the U.S. may suggest that the RiskMAP is effective. As of the end of 2Q:08, BIIB and ELN reported that 17,800 patients were being treated with Tysabri in the U.S. and 13,400 internationally.

They believe it highly unlikely that the FDA would remove Tysabri from the market once again following these latest cases of PML for reasons that include the fact that no confirmed cases have occurred in the U.S. and they suspect the Agency has gained comfort that the TOUCH program is working.

Second, they note comments made by Dr. Russ Katz, Director of the Division of Neurology Products at the March 2006 FDA advisory panel where it was recommended that Tysabri be reintroduced into the U.S. market. Prior to the start of the panel, Dr. Katz said "It is absolutely critical to state at this point that if marketing is permitted, we fully expect that additional cases of PML, many likely to be fatal, will occur."

Key will be whether the recent incidences of PML will impede growth in Europe or perhaps contract usage and if physicians in the U.S. will discontinue treatment or at least not initiate treatment in new patients.

Notablecalls: I have bought some ELN for my L-T investing acccount here around $11. I see the PML problem as a minor issue. The only risk here are the big funds that may be dumping the stock over the next couple of weeks due to risk-management issues.

On the valuation side, ELN's now dirt cheap. I suggest you ignore the media ga-ga and start buying some.